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The 2010 VAT package – new reporting rules and particularities of the Romanian implementation
The implementation of the EU 2010 VAT package has caused significant changes in the Romanian VAT reporting system, with significant impact at the level of all companies. The new reporting rules combined with the significant level of fines imposed for failure to comply with EC Sales and Purchases reporting has added to the bureaucratic pressure that the business environment is subject to.
Romania has also implemented the optional use & enjoyment rules for certain categories of services, which could affect companies active in the transport, manufacturing and cross-border leasing services.
A long-awaited change in the Romanian law, although not connected to the implementation of the 2010 VAT package, is the restriction of the scope of VAT adjustment rules to only those capital goods with a useful life of more than 5 years. Taxand Romania assesses the impacts of these changes for multinationals operating in Romania and advise on how best to mitigate risk.
As a result of the EU-wide introduction of the 2010 VAT package, Romania has amended the VAT section in the Fiscal Code to implement the new place of supply rules for services and new VAT reporting requirements. Particularly, Romania has implemented the optional use & enjoyment rules for services like transport of goods and ancillary services, work on movable goods, valuation of movable goods and long-term rental / leasing of means of transport. The use & enjoyment rules generally concern only transactions with non-EU clients, so these should affect only companies performing the above-mentioned services with a client base including non-EU clients.
The VAT reporting requirements have changed dramatically as of 1 January 2010. The scope of the EC Sales List has been widened to include supplies and acquisitions of services to and from EU partners, besides the intra-Community supplies and acquisitions of goods. Romania is one of the very few European countries demanding taxpayers to report intra-Community acquisitions of goods and acquisitions of reverse charge services from EU partners. The frequency of EC Sales reporting has changed from quarterly reporting to monthly reporting, while the usual 25th of the month deadline has been moved forward to only 15th of the month.
The requirement to report acquisitions of services from EU partners increases reporting pressure on companies dealing with external service providers, as this means that all invoices for services acquired need to be reported in the month when the tax point for such services arises. Companies will therefore need to implement rigorous rules with respect to acquisitions of services as well as goods, whereby to demand EU providers to issue and send their invoices in due time to meet the reporting deadline.
For the time being, the penalty for incorrect or incomplete reporting of transactions in the EC Sales and Purchases Lists amounts to 2% of the value of the transactions not reported, which is reduced to half if the corresponding EC Sales and Purchases List is corrected before the deadline for submission of the following statement - the wording of the legal article imposing this fine appears to imply that it applies only to intra-Community supplies and acquisitions of goods incorrectly or incompletely declared in the EC Sales and Purchases List.
At the same time, the Romanian authorities have taken this opportunity to make additional amendments to the domestic VAT rules as well, such as limiting the scope of VAT adjustment rules to only those capital goods with a useful life exceeding 5 years. This eliminates abnormal situations where goods with a useful life of less than 5 years (e.g. computers) which were taken off use before the expiry of the 5-year adjustment period triggered an obligation to adjust input VAT incurred on their acquisition.
Multinationals operating in Romania should optimise their document flows and improve communication between departments so as to ensure that intra-Community transactions concerning both goods and services are reported in due time in the EC Sales and Purchases List. Problems are expected to arise in respect of acquisitions of services from EU service providers, as these are easier to be overlooked if invoices are not received in due time. As a first step, we would recommend informing service suppliers of the obligation to report EU acquisitions of services in Romania and ask for priority in issuing and sending the corresponding invoices.
Transport companies and manufacturers, but also other companies rendering or recharging similar services should pay attention to the new use & enjoyment rules implemented under the Romanian law, so as to assess their impact on their own activity.
Finally, capital goods with a useful life of less than 5 years can now be replaced without triggering any VAT adjustment obligations, since the rules have been changed to apply only to goods with a useful life exceeding 5 years.
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